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Cablegate: Thai Finance Minister Says Baht Should Be Weaker

VZCZCXRO1217
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3188 2960912
ZNR UUUUU ZZH
P 220912Z OCT 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4789
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 5736
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

UNCLAS BANGKOK 003188

STATE FOR EAP/MLS AND EB
STATE PASS TO USTR
TREASURY FOR OASIA
COMMERCE FOR EAP/MAC/OKSA
SINGAPORE FOR FINATT BAKER

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: Thai Finance Minister says Baht should be Weaker

Sensitive But Unclassified. For Official Use Only.

Ref: Singapore 1127

1. (SBU) Summary: Thai Finance Minister Suchart told the Ambassador
October 21 that he would prefer a "weaker" baht to promote exports,
given Thailand's high dependence on export growth to keep its
economy expanding. He also has proposed extending deposit
protection guarantees to maintain investor confidence, postponing
the implementation of tighter banking standards to free-up bank
lending, and lower interest rates and increased government spending
to boost economic growth. The Bank of Thailand (BoT), which would
have to concur in the finance policy moves, has publicly opposed
FinMin Suchart's proposals. End Summary.
2. (SBU) Comment: The Ministry of Finance, and new Finance
Minister Suchart in particular, has had a long-running battle with
BoT, Thailand's central bank, over policy issues. Suchart, then the
Deputy Minister of Finance, even suggested last August that BoT
governor Tarisa should step down if the BoT could not support
Finance Ministry policy. Under Bank of Thailand Act, however, the
Bank, not the Ministry, has the say on baht policy and interest
rates and we have no indication that Gov. Tarisa is likely to back
down. End comment.

3. (SBU) The Ambassador and Economic Counselor met October 21 with
Minister of Finance Dr. Suchart Thada-Thanrongvech to get a read-out
of his visit to Washington for the IMF/World Bank meetings the
previous week. FinMin Suchart said that his trip to Washington went
well and he appreciated his meetings with USG officials, but the
conversation quickly turned to the domestic scene in Bangkok.

4. (SBU) The day of the meeting, the local press gave prominent
coverage to the economic policy conflicts between FinMin Suchart and
Bank of Thailand Governor Dr. Tarisa Watanagase. FinMin Suchart
dismissed the controversy as the press making more of the story than
was actually the case. However, he then made the point that as
Finance Minister he has a responsibility to speak to the economic
issues facing the country. Noting that economic growth was likely
to drop to four percent, or lower, in the next year, he pointed out
that Thailand's heavy dependence on exports for economic growth made
a looming recession in the United States and Europe particularly
worrisome. Exports are 60 percent of the Thai GDP, and have
accounted for the bulk of economic growth in recent years. With
domestic consumption and investment expected to be flat, a drop in
exports would put a tremendous burden on the government to make up
the difference through additional fiscal spending if the economy is
to grow. "I worry about rising unemployment," the FinMin said.

5. (SBU) Facing this situation, the FinMin asked, "How can I not
speak out about the value of the baht? I would prefer that the baht
be weaker" to make exports more competitive. He then went on to
explain that his econometric modeling (Suchart was earlier a
university professor) showed that a five percent drop in the value
of the baht would result in a ten percent increase in exports. When
the Ambassador asked whether this might not lead to inflation,
FinMin Suchart explained that his model showed that the inflation
effect would be minimal.

6. (SBU) FinMin Suchart also said that to deal with the impact of
the world financial crisis, Thailand should also consider: 1)
extending the existing blanket government guarantee of bank deposits
an additional three years to maintain the confidence of depositors
(see reftel), 2) postpone the implementation of Basel II capital
standards, fearing that early imposition could restrict bank
lending, 3) increase government spending, and 4) lower interest
rates. All of these ideas, except the fiscal stimulus, have been
publicly refuted by BoT Governor Tarisa. FinMin Suchart told the
Ambassador that his intention is simply to "get these ideas out for
discussion."

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